EUR/JPY Forecast: Yen Carry Trade Accelerates

The euro continues to see buyers against the lowly Japanese yen on Tuesday, as the carry trade continues.

EUR/JPY

The euro continues to grind higher against the Japanese yen as we see a lot of carry traders out there still pushing this trade, as well as many other trades against the Japanese yen. The Bank of Japan has intervened a couple of times recently, but quite frankly, is still in a state of denial if they think they can fight the overall momentum.

While the interventions have slowed down the destruction of the Japanese yen, the reality is that the traders out there continue to think that the Japanese won't be able to significantly lift rates as long as there is so much in the way of debt in Japan. And quite frankly, its markets probably couldn't handle the heavy debt load at a high interest rate; it would almost certainly destroy the economy as well.

So, with that being said, it's likely that we will continue to see a situation where every time we pull back, there will be people willing to buy the euro over the Japanese yen. And in this case, it's not so much about the euro; it's more about the Japanese yen or, more importantly, just how bad the Japanese yen is.

With this, I like the idea of trying to get short-term dips as buying opportunities, and I am short the Japanese yen against multiple currencies, most notably against the US dollar and the British pound, but the euro is stronger as well.

Technical Levels and Carry Trade Momentum

With that being said, it's likely that traders will continue to see this as a scenario where markets continue to look to the upside only. It's difficult to go short when you're paying such a high swap. The 185 yen level is more likely than not going to be support, especially with the 50-day EMA right there as well.

The markets will continue to look at the 50-day EMA as a potential support level, but if we were to break below there, then I would go looking to the 200-day EMA close to the 182.60 level.

To the upside, we have the 187.50 level as a swing high where they had intervened, and if we break above there, that's obviously a very bullish sign. I'm bullish only here; I have no interest in shorting.